EIS Industry Report 2018/19

6 7 OPENING STATEMENT REPORT OVERVIEW A WORD FROM DIRECTOR GENERAL, EISA ACKNOWLEDGEMENTS AND THANKS I want to take a risk and talk about risk. Dictionaries define risk as the possibility of losing something of value. But risk has to be relative to something to make it a worthwhile concept. In the case of investment risk, it is generally a measure of the level of uncertainty of achieving a return, in line with the expectations of the investor. According to a 2018 ONS study, only 44.1% of start- ups survive beyond five years. From that, we can surmise that investing in start-ups brings with it a high level of uncertainty of achieving a return. But has that level of uncertainty grown (relative to other investments) in respect of EIS investments since the November 2017 Budget? With far greater emphasis placed on attracting investment through EIS into growing, entrepreneurial businesses, where every £1 invested is at risk, the uncertainty hasn’t increased and arguably it has reduced. EIS fund managers, on average, look at over 200 potential business investment opportunities and spend a considerable amount of time assessing, filtering and dissecting these businesses before selecting the five or six that they eventually invest into. The result? Businesses backed by EIS investment managers demonstrate all So, a big thanks to: Andrew Aldridge, Mark Brownridge, Laurence Callcut, David Craven, John Davies, Matt Dickens, Martin Fox, Frederick Hervey- Bathurst, Martin Hill, Richard Major, John Mather, Paul Mattick, Gillian Roche-Saunders, and Belinda Thomas. Their input is invaluable, but needless to say, any errors or omissions are down to us. We have relied upon MICAP for most of the data that we have based the report upon. MICAP is part of the same group of companies as Intelligent Partnership. We also carried out our own extensive desk research by examining brochures, investment prospectuses, mystery shopping providers, and trawling through the websites to verify their data. The report is made possible by our sponsors, who have contributed copy to the report and supported us by helping to meet production and printing costs. So, a big thanks to Blackfinch Investments, Deepbridge Capital, Downing, Ingenious, Mercia, Seneca Partners, and Triple Point. Learning objectives for CPD Accreditation We are required to state these in order to qualify as accredited for Structured CPD. By the end of the report readers will: Understand how the changes from the 2017 and 2018 Budgets have impacted the EIS market. Identify trends in EIS fees, both in terms of charges levied on investors and investee companies. Be aware of the key strengths, weaknesses, opportunities and threats in the EIS market. Pinpoint recent changes to key EIS metrics, such as target returns, capital deployment times, and underlying investment sectors. Be able to benchmark current products and providers against each other on key investment criteria. Recognise how the adviser community is currently interacting with EIS and its areas of confidence and concern. Mark Brownridge Director General, EISA We couldn’t do this without the help and support of a number of third parties who have contributed to writing this report. Their contributions range from inputting into the scope, sharing data, giving us their insights on the market, providing copy, and peer reviewing drafts. the key criteria expected of an exciting, fast-growing, successful business (entrepreneurial, highly qualified team, disruptive idea, etc). Obviously, there are no guarantees but surely, a business displaying these criteria is more likely to succeed than one that doesn’t. Effectively, you’re investing into the cream of the crop. The 2017 Budget changes created a level playing field with other investments, such as VCTs, who now face exactly the same HMRC growth and development requirements. So that just leaves us with achieving returns in line with the expectations of the investor. Investor expectation in respect of returns, is specific to each and every individual, and that individual’s personal expectation will vary markedly from another’s. This is where our industry has work to do. Setting those expectation levels at a measurable and achievable level, and educating investors and advisers as to where those levels now sit, how they compare to other investments and how diversification can reduce the uncertainty even further, whilst at the same time being open and honest about the successes and the failures will be crucial. As Warren Buffet once said: “risk comes from not knowing what you’re doing”. The move towards focusing EIS investment into innovative, growth pursuing businesses is a move we should be embracing, applauding and shouting about, not being apologetic for. What reasonable investor doesn’t want to support small UK businesses with bright ideas and the credentials to grow to be a productive, market leading business, not just in the UK, but globally and to have the opportunity to share in that success? The businesses that EIS invest into know all about uncertainty and risk. It’s time we joined them. Like the Royal Mail, once again, the AIR report from Intelligent Partnership has delivered! A common theme we hear from financial planners and regulated advisers is that there is no one resource they can refer to get an overview and dissection of the EIS industry. Well, here it is! The AIR Report packs a punch and delivers knowledge, education and statistics all in one easy-to-read report. Read it, refer back to it and use it to inform your client conversations.